Penalties for Missing a Single Student Loan Payment
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What is the main topic discussed in this episode?
This is your Money Briefing. I'm Charlie Turner at The Wall Street Journal in New York.
What penalties can occur after missing a single student loan payment?
More than 40 million Americans owe money for student loans, and missing even one payment can have a big impact. The Wall Street Journal's J.R. Whalen talks with contributor Cheryl Winokur Monk about the penalties that some federal and private lenders may levy. First, here are some top money and market stories. The Wall Street Journal says Charles Schwab's zero-commission gamble is paying off. On October 1st, the San Francisco-based online brokerage said it was slashing commissions on online stock trades to zero, an announcement that rattled the e-broker industry and triggered a nearly 10% one-day drop in Schwab stock. Since then, shares of Charles Schwab have recovered nearly all their losses and are now just below where the stock price was on September 30th, the day before the announcement.
Schwab's rivals have also recovered, but not as strongly. Both E-Trade and TD Ameritrade also cut commissions to zero in the wake of Schwab's move. The relative strength of Schwab reflects differences in its business model. As the largest of the three big publicly traded e-brokers, Schwab is the least dependent on trading commissions, deriving more of its revenue from banking. Americans are still fairly optimistic about their own job situations and financial health, but they're more worried about the economy than they were last year, according to a consumer sentiment survey. The University of Michigan's Index of Consumer Sentiment was revised down to 95.5 in October from an initial reading of 96.
How can I identify whether my loans are federal or private?
That's nearly identical to the 2019 monthly average, but well below the post-recession peak of 101.4 set in early 2018. The survey found that fewer Americans expressed anxiety about the festering trade dispute with China in October than they did in September, when President Trump upped the ante with a vow to raise tariffs again. Trade tensions eased in October, however, after the U.S. and China resumed negotiations.
After mortgages, student loans are the second largest debt category. Americans currently carry $1.5 trillion in student loans, and the average balance runs close to $30,000. Some borrowers miss payments from time to time, and the penalties can be severe, like going into delinquency status after missing just one payment.
What happens to federal student loans when a borrower misses one payment?
Wall Street Journal contributor Cheryl Winokur-Monk joins us to explain. So Cheryl, penalties vary depending on if the student has a federal or a private loan.
Which federal loans can go into default immediately after one missed payment?
Is there a quick way to find out what type of loan you have?
Yes. Borrowers should go to the National Student Loan Data System to get a list of their federal loans. Then they can match up those loans with the ones listed on their credit report from Experian, TransUnion. The loans that aren't listed in the National Student Loan Data Systems database are most likely private loans.
On federal student loans, what happens if a borrower misses a payment?
Well, with federal loans, a borrower becomes delinquent the first day after missing a payment.
How do penalties and collections differ for private student loans?
So even if the borrower misses his payment and then starts making payments again, that account remains delinquent until the borrower repays that past due amount or makes other arrangements. So those other arrangements might include deferment, forbearance, which let you temporarily halt or reduce monthly payments or changing repayment plan.
But there are types of federal loans that put a borrower in default with just one missed payment, right?
Borrowers who have a federal Perkins loan, which not everyone will, but borrowers who have this specific loan could be deemed in default immediately after missing just one payment.
And so what happens then? Can the government go and garnish wages?
Potentially. The government has a lot of options if you're in default.
Is there a statute of limitations on collecting private student loan debt?
Once you're in default, borrowers can no longer receive deferment or forbearance, and they lose eligibility for other benefits, such as choosing a repayment plan. The other issue is that the entire unpaid loan balance and any owed interest will be due immediately.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:06–0:10
2
What penalties can occur after missing a single student loan payment?
0:10–1:33
3
How can I identify whether my loans are federal or private?
1:33–2:25
4
What happens to federal student loans when a borrower misses one payment?
2:25–2:36
5
Which federal loans can go into default immediately after one missed payment?
2:36–3:09
6
How do penalties and collections differ for private student loans?
3:09–3:53
7
Is there a statute of limitations on collecting private student loan debt?
3:53–4:39
8
What steps should borrowers take if they can’t make their student loan payments?
4:39–6:33
Speakers
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